Pfizer Inc. — Q3 2023 Form 10-Q
Business context and reporting period. Pfizer is a global biopharmaceutical company; Biopharma is its only reportable segment. The quarter ended October 1, 2023 (international subsidiaries’ reporting period ended August 27, 2023). Comparatives are the three and nine months ended October 2, 2022 and December 31, 2022 for balance-sheet items.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $13.2B | $22.6B | $44.2B | $76.0B |
| Net income/(loss) attributable to Pfizer | $(2.4)B | $8.6B | $5.5B | $26.4B |
| Diluted EPS | $(0.42) | $1.51 | $0.96 | $4.60 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $3.5B | $20.7B |
Q3 GAAP cost of sales was 70.0% of revenue, versus 26.8% a year earlier; nine-month cost of sales was 39.3%, versus 32.5%. The quarter’s cost of sales included $5.6B of non-cash COVID-19 inventory write-offs and related charges, substantially reducing reported profitability. Adjusted diluted EPS, a non-GAAP measure, was $(0.17) for Q3 and $1.73 for the nine months, versus $1.78 and $5.44, respectively, in 2022.
At October 1, cash and cash equivalents were $3.1B and short-term investments were $41.0B. Current assets were $74.0B and current liabilities $31.1B. Long-term debt was $61.0B, up from $32.9B at year-end 2022; short-term borrowings including current debt were $2.5B. Pfizer issued $31B of senior unsecured notes in May to help fund the proposed Seagen acquisition. Nine-month cash dividends paid were $6.9B; no share repurchases were made under the public authorization.
Material changes and drivers
- Revenue fell 42% in both the quarter and nine-month period, primarily from lower Comirnaty and Paxlovid sales. Excluding those products, revenue grew operationally 10% in Q3 and 7% year to date.
- Q3 Comirnaty revenue was $1.3B, down 70%; Paxlovid was $0.2B, down 97%. In the first nine months, they generated $5.9B and $4.4B, respectively, both sharply below 2022.
- Growth in Vyndaqel, Prevnar and Eliquis, along with acquired Nurtec ODT/Vydura and Oxbryta and newly launched Abrysvo, partly offset COVID-19 product declines.
- Nine-month operating cash flow dropped to $3.5B from $20.7B, reflecting lower earnings and non-cash adjustments, timing of receipts and payments, lower COVID-19 advance payments, and inventory changes. Financing cash flow included $30.8B of long-term debt proceeds.
- Pfizer recorded a $222M pre-tax gain from divesting its early-stage rare-disease gene-therapy portfolio to Alexion. A Rocky Mount, North Carolina tornado caused $209M of Q3 costs; most manufacturing lines had restarted, but supply effects were expected through at least mid-2024.
Outlook, commentary and key risks
- As of October 31, Pfizer forecast 2023 revenue of $58B–$61B, with an expected operational decline of 40% at the midpoint versus 2022. The filing cites estimated 2023 Comirnaty revenue of about $11.5B and Paxlovid revenue of about $1B.
- A subsequent October 13 U.S. government Paxlovid agreement provides for return of remaining EUA-labeled inventory, with an estimated $4.2B revenue reversal in Q4 2023. Pfizer expects to recognize revenue on approximately 8.9 million treatment courses delivered under related credits and stockpile arrangements, without cash compensation for those courses.
- In October, Pfizer announced a multi-year cost realignment program targeting at least $3.5B in annual net savings: about $1.0B in 2023 and at least $2.5B more in 2024. Estimated costs to achieve savings are about $3.0B, mostly cash; 2024 guidance was still being refined.
- The proposed Seagen acquisition, for approximately $43B enterprise value, remained subject to closing conditions and regulatory approvals; closing was expected in late 2023 or early 2024. Failure to close under specified conditions could result in a reverse termination fee of about $2.22B. Seagen-related financing and leverage may affect flexibility and credit ratings.
- Major risks include uncertain COVID-19 demand and commercial transitions; product and patent litigation; future patent expirations and generic competition; global drug-pricing measures, including the IRA (Eliquis was among the first drugs selected for Medicare price negotiation); manufacturing and supply interruptions; and litigation, tax, regulatory, foreign-exchange and geopolitical uncertainties. Pfizer reported negative outlooks from Moody’s and S&P on long-term debt.
Important facts for investors to verify
- Subsequent quarterly results and guidance: the $4.2B Paxlovid revenue reversal, actual commercial-market demand, and delivery/revenue recognition for the related treatment courses.
- Completion, financing and integration of Seagen, including the effect of added debt, interest expense and credit outlooks.
- Progress and realized savings from the cost realignment program compared with its estimated $3.0B implementation costs.
- Recovery of the Rocky Mount facility, supply availability and any additional costs or insurance recoveries.
- Trends in non-COVID-19 product growth, pricing and access, and exposure to patent challenges, product litigation and regulatory changes.